Geithner to Banks: Get Federal Help, Government Decides Your Executive Line-Up
WASHINGTON -- The government may require new faces in executive suites at banks requiring "exceptional assistance" in the future, Treasury Secretary Timothy Geithner said Sunday.
Critics of the Obama administration's move last weekend to force out the chairman of General Motors Corp., Rick Wagoner, as a condition for possible additional federal loans say that strong government intervention contrasts with measures placed on the financial industry in return for billions in infusions.
Geithner denied there was a double standard and put banks on notice that they may need to change leadership teams in exchange for accepting more money in the future.
"If, in the future, banks need exceptional assistance in order to get through this, then we'll make sure that assistance comes with conditions, not just to protect the taxpayer but to make sure this is the kind of restructuring necessary for them to emerge stronger," he told "Face the Nation" on CBS. "And where that requires a change of management of the board, we'll do that."
The treasury chief said that is what has happened at some big institutions that are getting large amounts of government aid. They include the mortgage companies Fannie Mae and Freddie Mac, which were placed into conservatorship by the government last September, and insurer American International Group Inc., the recipient of more than $170 billion in help since last fall.
"We've already seen a substantial number of the largest banks in our country fail or be absorbed by other institutions, no longer existing at independent institutions. And where the government has acted, like in Fannie and Freddie or like in AIG, where we've had to do exceptional things to stabilize them, we have replaced the management and the board," Geithner said.
"And we've done that because we want to make sure that taxpayers' assistance is going to make these companies stronger, make sure there's accountability, make sure it comes with strong conditions. And we'll do that in the future if that is necessary," he added.
There have been circumstances here in Michigan where the state government has instilled overseers for school districts and at least one city (Flint) when their fiscal status is at a level in which they are in danger of collapse. I've always thought that the practice was a little extreme but probably necessary in the particular circumstances.
One thing that made it tolerable was that it was one governmental entity to another. When it is the federal government taking control of corporations, that is not nearly as comforting.
There is a strong argument in governmental oversight and even setting conditions for the bailout money they are throwing around. Firing CEO's and naming replacements, determining compensation, or selecting the boards of directors is going way beyond mere stipulations.
The thing that I find most alarming in this article is the ease at which the Obama administration is doing this. They have reached a comfort level in controlling businesses that is scary.
There has been much discussion on some news programs (okay, mostly on Fox), in online articles, and on the blogs of Obama steering us towards a European style socialism, we may have been reading him all wrong. The moves this administration have been making over the last few weeks are more reminiscent of a Venezuelan style government.
We may be looking back in the years ahead and realize how naive we were in the early months of the Obama Presidency.
For an excellent read on this very subject, check out this article by Stuart Varney of the WSJ.
Obama Wants to Control the Banks